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Saving Gas: A New Look At The Oil-Economy Connection

By Peter Goodchild

28 December, 2011

What effect, if any, does a "debt crisis" have on the weakening of the
middle class, and specifically on middle-class access to resources
such as fossil fuels? The connection between oil and money can be
complicated, and even economists seem mystified. One theory is that it
is global oil depletion, directly or indirectly, that leads to credit

While this may be true to a large extent, there is also the intriguing
possibility that the process simultaneously works in quite a different
manner: that a credit collapse slows the decline of the oil supply.
Such a theory has an ominous implication: that the purpose of a
"crisis" is to weaken the middle class in order to ensure that the
wealthy can prolong their own enjoyment of the Oil Age.

As stated above, one theory about the oil-economy connection is that
it is oil depletion, and therefore the rise in the price of oil, that
directly or indirectly leads to a credit collapse -- not so much that
the rise actually causes the credit collapse, but that it triggers it,
that it acts as the final straw. Michael Lardelli and James Hamilton
both seem to feel that a credit collapse is triggered when the price
of oil goes over a certain limit, or perhaps a certain percentage of
the GDP. "Therramus" believes that it was not so much the oil price
itself as oil-price volatility that led to the 2007 real-estate panic:
"The 2008 oil shock occurred after the financial crisis started. . . .
However . . . the shock of 2008 is not an isolated event. This recent
run-up in oil price simply explains the largest of a series of at
least 7 spikes in volatility, with the first topping out in 2002."

The various forms of "debt crisis" obviously result in a lowering of
most people's wealth. Every "debt crisis" then leads to a reduction in
the consumption of non-renewable resources, particularly oil. The
reduction in the buying of oil means the price of oil goes down. In
spite of that lowered price, people still buy less oil and use less
oil. (Let us not forget that during the Great Depression cheap apples
on a street corner did not mean that people started buying those
apples.) What we need to look at more closely, therefore, is not high
oil prices, but low ones. That may sound odd, but it is the lowering
of prices that are an indication of economic troubles for the average
person, as the previous comments have just intimated.

(Let us "de-construct" all the above. The first belief that it is a
shortage of oil that brings on the "debt crisis" may still be partly
true, but it would be stretching one's imagination too far to think
that it is only "high prices" for oil that lead to the crisis -- since
the crisis is probably more closely correlated with low prices than
with high ones.)

The evidence for all this might be seen by comparing two variables
during a period of debt crisis: oil prices and oil consumption. In the
course of about 6 months beginning in mid-2008, the price of Brent
crude fell from about $145 to about $35, and the price is still very
volatile (EIA). Oil consumption in OECD countries from 2008 to 2010
fell from 47.77 million barrels per day to 46.9 (EIU estimates), or
from 47.47 to 45.76 (US Department of Energy estimates) (ESCWA, 14
March 2009).

The basic steps of a "debt crisis" can be seen in that of the
sub-prime mortgages, beginning about 2007. Banks lent far too much
money to unreliable borrowers. (Banks then packaged those loans into
indecipherable derivatives which they sold around the world. Then they
created financial instruments to insure against potential losses.) The
borrowers defaulted. The banks then claimed they were about to go out
of business, which meant (or so we were told) that large numbers of
innocent people were about to lose money. In order to save the day,
the government came up with a "rescue package" to "bail out" those
unfortunate banks. (There were several other buzzwords, all referring
to roughly the same thing, such as "a stimulus package" to "prime the
pump," and nobody seemed bothered by the mixed metaphors.)

The money for such any "rescue packages" comes from the government,
which in turn receives it from the taxpayers. These are not small
amounts of money: the Emergency Economic Stabilization Act of 2008,
for example, authorized the spending of up to $700 billion.

Or, to make a very long story into a very short one: the banks, which
lose the money in the first place, have their suffering ended by a
multi-billion-dollar gift from ordinary people.

At this point it seems we are well into what is called "the big lie":
if you tell a lie that is sufficiently enormous, and sufficiently
preposterous, the irony is that it will be believed, on the assumption
that any lie of such magnitude would never be allowed to survive. But
it does.

As the story progresses, the first obvious question is that of the
people at the first stage of the event: the bankers. If bankers -- and
political leaders -- allow such a catastrophe to occur, they are
either stupid or dishonest. If they are stupid, why are they not
fired? If they are dishonest, why are they not punished? But a further
question is: Is there more to the story than either stupidity or
dishonesty? Is there, in fact, a very large but well-hidden secret
agenda behind the whole process? Is each "crisis," not an accident,
but a marvelous piece of choreography?

In other words, perhaps the basic purpose of a "debt crisis" is to
reduce most people to poverty. In that way they will not use fossil
fuels. In that way the annual decline rate will be very small. And in
that way the children of the elite will have nothing to worry about.

It's probably safe to say that the impoverishment of the middle class
is a general pattern nowadays. The concentration of wealth and income
in the US over the last few decades is a certainty, and the details
are right there to read at various government Web sites. "Administered
pricing" is a respectable activity in a world where corporations are
becoming both larger and fewer. The ever-shrinking number of people
who run the communications media, and hence have control of the
official "truth" about anything, is likewise a proven fact. And so on.
But it is not so easy to determine at what point in our speculations
we are going too far. Can we connect dots that are miles apart?

Perhaps the use of a "debt crisis" to reduce access to fossil fuels is
not exactly a "global conspiracy," but merely a variant on the
principal discussion at the 1995 State of the World Forum, convened by
Mikhail Gorbachev (Martin and Schumann, 1997). The topic discussed
there was the evolution of "the 20:80 society," which Jeremy Rifkin
explained by saying that "80 percent will have enormous problems." To
this discussion Scott McNeally added his motto, "Have lunch or be


Economic and Social Commission for Western Asia (ESCWA). (14 March
2009). the impact of the global financial crisis on the world oil
market and its implications for the GCC countries.

Hamilton, James. Econobrowser. (2 April 2009), Consequences of the oil
shock of 2007-08.

Lardelli, Michael. The oil-economy connection. Online Opinion. 25
November 2009. http://www.onlineopinion.com.au/view.asp?article=9694&page=0

Martin, Hans-Peter, and Harald Schumann. (1997). The global trap:
Civilization & the assault on democracy & prosperity. Trans. Patrick
Camiller. Montreal: Black Rose.

Therramus. Oil caused recession, not Wall Street. (21 January 2010).
Energy Bulletin. http://www.energybulletin.net/5120

U.S. Energy Information Adminstration (EIA). Petroleum and other

Peter Goodchild is the author of Survival Skills of the North American
Indians, published by Chicago Review Press. His email address is




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